About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, March 13, 2012

Stock Market -- Fundamentals

Primary Fundamentals
These are measures I use to determine when we have an "easy money" bull market which features
high return for the assumption of low risk. The stock market entered the latest "easy money" era at
the end of 2008, and this reading remains in force today. All five indicators need to turn negative
before the era ends and that has yet to occur. The only period in modern history that rivals the
current one for duration is the early 1932 - early 1937 era when the conomy and the stock market
benefited from a super accomodative monetary policy to arrest a depression.

As with the '32 - '37 interval, the market has provided a high return, but accomodative monetary
actions did not shelter investors from periodic sharp corrections (2010 and 2011 in the current
epoch). The volatility then as now reflected low investor confidence levels as well as concerns
about the durability of monetary and fiscal ease. In this sense, the current bull has been very much
different from the post WW 2 markets.

The volatility may continue going forward as it has yet to be seen whether the market can advance
in the absence of overt QE policy. Moreover, as 2012 winds down, discussion could also build
around the idea of tightening fiscal policy for 2013 and beyond. Investors have to be prepared for

I doubt my primary indicators will all turn negative in 2012 if only because the Fed is keeping
the "risk free" 91 day T - bill rate between 0.0 - 0.25%. So, the primary bull case will be there
through the year, but, the volatility may be there as well.

Secondary Measures
I watch liquidity available for stocks as well as the trend of the oil price very carefully. On my
reading, liquidity in support of further stock market strength is low now, and it may well be that
to send the market substantially higher, players may have to swap out of bonds especially but
also PMs and selected commodities to free up funds for stocks. Importantly, private sector
credit growth is recovering and if banks eventually begin competing more vigorously for funds,
there will be more liquidity available for stocks.

The price of oil has been kited up by threats from Israel, the US and the EU on one side and Iran
on the other regarding Iran's nuclear development programs with the prospect of conflict and a
possible oil supply shortage to worry over. So far, Iran has been the prime beneficiary. The
rise in the gasoline price is hurting Obama substantially and he may eventually either have to
tap the SPR or tell Israel to shut the hell up or both. Intentionally or not, Israel is now meddling
directly in US politics and They will pay for that down the road if I know my US.

Without further threats to or from Iran re: the oil supply, the current price range of $105 - 110 bl.
seems a bit too high.

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